Are you taking too much?

Dominic Thomas
June 2024  •  3 min read

Are you taking too much out of your pensions and investments?

It would seem that many people are. According to research conducted by NFU Mutual, over half of people accessing their pensions for the first time cleaned the entire pension pot out. If that is even half-true, it’s a concern.

A dig into some of the data suggests that 739,535 pensions were accessed for the first time in 2022/23 up from 420,727 the year before. The research found that over 75% of people taking their pensions were not advised, so will have no recourse. Many will likely have paid emergency tax and failed to reclaim it if they had been over-taxed.

It seems that on one hand the former Chancellor Mr Osborne (I cannot now remember how many we have had since) would be pleased that people are using their own money to fund their lifestyle. However, this sort of data, when viewed in conjunction with the regulator’s concern about ‘retirement income’ and a heavy, detailed questionnaire that seeks ‘big data’ rather than the nuance of real life, leaves me concerned. Osborne made pensions rather like a bank account.  Prior to his changes, there were limits on how much people could access, which whilst often seemingly at odds with reality, at least was a sense check. Today you can blow your life savings as quickly as you can say Ferrari.

The problem is that this might lead to a return to restrictions, in a world where pensions are already ludicrously complex. I hope not, but certainly some reimagining of what a pension pot could and should do for us all is required.

Here at Solomon’s, we plan income withdrawals very carefully for our clients. Many people are lucky enough to have decent old-style final salary pensions (NHS, Teachers, Local Government and old large companies) which provide a good base income.  For all its problems, the State Pension begins at an individually specific time and often there is a gap in the need for income between retirement and the State Pension starting. Of course, some will need and want more and so we plan with all the options in mind on an individual basis.

We model scenarios, attempting to build a plan that has a very high chance of success, which in plain English simply means ‘not running out of money’. However, we don’t know how long you will live and what the future holds (we are neither magicians nor fortune tellers). We use historic data and run multiple scenarios. We stress-test the plan and just as importantly review progress and make adjustments. There are no absolute certainties, but we do our best to ensure that your plan is set up to pay minimal fees and taxes, so that your money has the best chance of lasting as long as you do.

If you know someone who could use our help with this, please send them along. We specialise in working with people approaching retirement and those in it, who have two key questions – will I have enough? And will I run out? (which are much the same).

There are limitless things to spend money on, but not having enough to turn the heating on is a problem no-one should ever have.

Are you taking too much?2024-05-31T14:44:49+01:00

Ten million don’t check pensions

Ten million don’t check pensions

Wow! according to research conducted by AVIVA (who used to be Norwich Union) about ten million people are not checking their pensions. That is staggering. For many people their pension will be their second largest asset, their home being the largest.

ICM research surveyed 1500 people online, who were 45+ but under retirement age. A staggering 63% did not bother to check their pensions. AVIVA have extrapolated data from their research and widely known information about pensions published by the Office of National Statistics (ONS). Their data suggests that there are about 8.1m active occupational pension scheme members and about 8.2m with active private pensions. Active doesn’t necessarily mean “paying into” – after all these are pensions that alter in value each year (or day) and ultimately have a maturity date. Breaking down the numbers (a precarious exercise) results in AVIVA concluding that about ten million people do not check the value of their pensions.

So what?

Even if the numbers are vaguely correct, there are probably a variety of reasons why people do not check their pensions. Frankly it could be as simple as they lost them or didn’t know they even had them (from former employers). It might be the constant name changing of pension companies due to all the mergers and acquistions that have occurred over the last 20 years. It may be that they realise that the pots are so small that to check them seems rather trivial. Equally it may be that because they are small, few wish to be reminded of the reality of the pension provision.

Not always the ostrich

It isn’t as simple as dismissing ten million people as little more than the proverbial ostrich. The reasons can be rather more complex. In any event, whilst the ostrich is known for its head-in-the-sand behaviour, it does have a rather large nest-egg and of course, whilst flightless, is a very fast and powerful runner, even being raced…

One problem is the simple number of pensions to keep track of . The research found to be the main reason why people consolidated pensions (of those that did). Consolidating pensions can make a lot of sense, but it needs to be done very carefully – some older style pensions have various guarantees which may be worth keeping. Some may have very high penalties for transferring them to a different pension.

Making the best of things

Whatever the reason, being prepared for retirement and knowing what you are aiming for is important to us all…. ask any pensioner! As a financial planner, I work with what you have built up and then we figure out together what you need and how to best get there. May I urge you, if you are not a client to begin by downloading my free guide to regaining control of your pension. If you are a client, please share this information. Drifing into retirement will result in serious disappointment.

 

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Ten million don’t check pensions2023-12-01T12:20:04+00:00
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